Why This Analyst Is Bullish On These 2 Stocks: XPeng And An American Defense Company

Gianni Di Poce is an analyst at The Mercator, a research company dedicated to the study of economic and financial market trends.

Di Poce also writes Benzinga Pro's exclusive weekly "Insider Report" with technical analysis, trading ideas and market commentary.

For this week, Di Poce chose Xpeng Inc - ADR XPEV, and Northrop Grumman Corporation NOC as his top two stocks.
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What Is Happening with Xpeng? Founded in 2014, XPeng is a Chinese electric vehicle manufacturer. The company is headquartered in Guangzhou, China with offices in Mountain View, California.

While the company is struggling to achieve profitability, Di Poce noted its revenue soared in 2021. The company brought in just under $21 billion, a significant increase from the $5.84 billion it generated just a year earlier.

XPeng saw a 133% growth in June automobile deliveries year-over-year.

“XPEV’s book value is 7.05, and its price-to-sales is 7.07,” Di Poce said.

Some Insight: The net difference between a firm's entire assets and liabilities is the book value of that company — book value represents the total worth of a company's assets that shareholders would receive if the company were to be liquidated.

A valuation ratio that contrasts a company's stock price with its revenues is called the price-to-sales (P/S) ratio — it serves as a gauge of how much the financial markets value each dollar of a company's sales or revenues.

Why Is It Happening? “Chinese tech stocks continue to trade at a tremendous discount, which should not be ignored,” Di Poce said, adding “China’s equity market has been rallying for over three months now, while the S&P is coming off a low from June.”

The SSE (Shanghai Stock Exchange) Composite Index bottomed on April 26 and has rallied 14.80% since then.

The company recently achieved 200,000 vehicle deliveries in under four years since its inception, “an impressive feat,” Di Poce noted.

“I am bullish on XPEV as long as the stock remains above $28-$28.50,” he said, with an "upside target of $42-$44."

What Is Happening with Northrop Grumman? Northrop is an American multinational aerospace and defense technology company.

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“This megacorp brought in over $35 billion in revenue in 2021, along with $7 billion in earnings,” Di Poce wrote while explaining the company boasts a comfortable quarterly free cash flow of $1.69 billion.

The technical outlook [on the chart] looks bullish as Northrop continues to consolidate tightly within a cup and handle formation.

Why Is It Happening? “Defense stocks held up notably well during this market pullback, a key tenet of relative strength. Geopolitical tensions also have yet to wane, so demand for this company's services remains elevated,” the analyst wrote.

Reuters reported Northrop Grumman is one of two companies to receive a contract from the Pentagon to build hypersonic interceptors; the other company is Raytheon Technologies Corp RTX.

Wells Fargo & Co WFC recently maintained its equal-weight rating on NOC, though Di Poce said, “the weight of the evidence suggests it could turn into a leader.”

“I am bullish on NOC so long as the stock remains above $425-$430,” the analyst wrote with an "upside target of $560-$570."

Photos: Courtesy XPeng; Northrup Grumman